On Friday, UBS analyst Marcus Cole upgraded the stock rating for Persimmon Plc. (LON:PSN:LN) (OTC: PSMMY) from Neutral to Buy, adjusting the price target to GBP15.40 from the previous GBP17.90. This upgrade comes despite a reduction in the price target, reflecting a more cautious earnings outlook for the UK-based housebuilding company. According to InvestingPro data, the stock's RSI indicates oversold territory, suggesting potential for a rebound.
Cole's decision to upgrade the stock is influenced by the significant drop in Persimmon's share price, which has fallen by 33% since October. Currently, the shares are trading at 1x 2025 estimated Price to Tangible Net Asset Value (P/TNAV), which is aligned with the long-term average of 1.6x and is near a historical low. With a P/E ratio of 13.56x and trading near its 52-week low, InvestingPro analysis suggests the stock is currently undervalued.
Furthermore, the shares only price in approximately 15% adjusted long-term Return on Capital Employed (ROCE), compared to UBS estimates of 20% and an average of 28% since 2000.
The analyst notes that the liquidation value of Persimmon's land bank is estimated to be around 1,460p, indicating a potential upside of over 35%. Despite the more cautious earnings forecast for Persimmon, which reflects recent company statements and macroeconomic conditions such as higher swap rates, Cole believes these factors are already reflected in the stock's price.
The company maintains a strong financial position with a current ratio of 4.09 and offers a notable dividend yield of 3.47%, having maintained dividend payments for 15 consecutive years.
Persimmon is expected to address most of its fire safety provisions in the years 2025 and 2026. The resolution of these issues should provide the company with greater cash flow flexibility moving forward. UBS's analysis suggests that the market has not fully recognized the potential value in Persimmon's shares, presenting a buying opportunity as indicated by the upgrade in their stock rating.
For deeper insights into Persimmon's valuation and additional financial metrics, investors can access over 10 exclusive ProTips and comprehensive analysis on InvestingPro.
In other recent news, Persimmon Plc experienced a downgrade in its stock rating from RBC Capital. The firm adjusted its stance from Sector Perform to Underperform, while also reducing the price target to £12.75 from the previous £14.75. This shift reflects RBC Capital's concerns regarding Persimmon's ability to sustain its historical premium rating.
Persimmon has been known for its high returns in the sector, credited to its effective land buying strategies and a robust focus on cost control. However, there have been concerns that the company's intense cost reduction efforts have sometimes compromised the quality of its building projects. Recent developments show that the current management is prioritizing improvements in quality and customer service, which are seen as positive changes.
Despite these improvements, RBC Capital analysts have expressed concerns that the costs associated with higher quality and better customer service could impact Persimmon's ability to achieve the same level of returns as in the past. Consequently, this might pose a challenge for the company in maintaining its premium market rating. The revised price target of £12.75 indicates a more cautious view of the company's future financial performance.
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